Mortgage rates have been at historic lows for a couple years now, and it’s still possible to get 0% financing on an automobile (thank you fed rate under 1%). But if you’ve recently shopped for a low-APR credit card, you’ve probably noticed the lowest interest rates generally hover somewhere around the 11% range. What the heck?
Even compared to low-APR cards from just a handful of years ago, which frequently offered ongoing rates of 7.9% and even 5.9% interest, the numbers feel out of whack. Yes, you can still get low- or zero-percent introductory offers, but really low interest rate credit cards are nearly impossible to come by these days. It turns out there are several factors keeping credit card interest rates higher.
“Because credit cards are unsecured lines of credit they are, by definition, riskier for creditors than, say, a secured auto or home loan because there is no security that can be repossessed,” Thomas Nitzsche, a credit educator with ClearPoint Credit Counseling Solutions, said. “Because of this risk, there is a greater ‘spread’ between the fed rate and what a consumer experiences on their credit card.”
Add to that changes enacted by the Credit Card Accountability Responsibility and Disclosure, or Credit CARD Act of 2009. The act restricted issuers from doing things like charging cardholders a fee for going over the limit unless the cardholder has given them permission to authorize purchases that will put them over the limit.
“That cut into credit card issuers’ profits, thus causing them to increase annual fees and interest rates,” Nitzsche said.
Increased instances of identity theft and data breaches also have increased business costs for issuers, Nitzsche said, and those costs are being passed along to cardholders.
That’s because the costs of identity theft and data breaches are astronomical. The 2016 Identity Fraud Study, released by Javelin Strategy & Research, found that $15 billion was stolen from 13.1 million U.S. consumers in 2015. These identity thieves take over bank accounts and drain your balances, charge a credit card up to the limit, take over your utility or mobile phone account, and apply for credit and loan accounts in your name, sticking you with the bills and a damaged credit history to clean up.
Of course, identity thieves don’t always just stop there. They might also apply for health insurance in your name, jobs, tax refunds and even commit other crimes while impersonating you. To help keep yourself safe, it’s a good idea to monitor your financial accounts and your credit regularly. You can check your credit reports for free every year at AnnualCreditReport.com, and keep a more regular eye on your credit scores by tracking your two free credit scores, updated every 30 days, on Credit.com. If you spot fraud, you should report it to the proper authorities and dispute the information with the credit bureaus.